Question

17.          Using the information below, fill in the Income Statement and Statement of Financial Position (template provided as Excel Spreadsheet).                                                                              

On 1 July 2018, Biotechnology Products commenced business.

On July 1, 2018 the financial position included:

• Assets of cash ($200,000) and laboratory equipment ($250,000).
• Liabilities of a loan for initial start up costs ($300,000)
• Owner’s equity in capital ($50,000)

During the year ended June 30, 2018, the company entered into the following transactions:

• Billed clients for $500,000 biotechnology related products.

• Rent of the premises used by the company was $30,000 per year.

• Paid $150,000 for research and development over the year. All of this was expensed.

• Lab equipment depreciated at 20% on cost.
• Paid wages of $180,000
• Paid interest on the loan of $15,000 ($25,000 of the principal was repaid)
• Paid 12 month insurance premium of $12,000 on 1 July 2018.
• Owner withdrew $50,000 in cash towards his living expenses.

Answer 1

Income statement

Particulars	Amount	Amount
Revenue		$500000
Less expenses;
Rent	$30000*6/12	$15000
Research and development		$150000
Depreciation expense (Lab equipment)	$250000*20%	$50000
Wages		$180000
Interest on loan		$15000
Insurance expense	12000*6/12	$6000
Total expenses		($416,000)
Income		$84000

*) Rent for the period $15000 is not paid. So it will be outstanding at the year end.

*) Insurance expense is paying for one year. 6 months are in this period. So half of the depreciation will be prepaid.

*) Clients are not paid. Therefore all revenue will be treated as accounts receivable.

Cash account

Dr.                                                                                                              Cr.

Particulars	Amount	Particulars	Amount
To balance b\d	$200000	By wages	$180000
		By interest on loan	$15000
		By Loan	$25000
		By Insurance expense	$12000
		By Drawings	$50000
To balance c\d	232000	By research and development	$150000
Total	$43200	Total	$432000

Credit balance of cash account will be treated as bank overdraft.

Statement of financial position

Particulars	Amount	Amount
Assets
Laboratory equipment	$250000
Less: Accumulated depreciation	($50000)
Net Laboratory equipment		$200000
Accounts receivable		$500000
Prepaid insurance	12000*6/12	$6000
Total assets		$706000
Liabilities
Bank OD		$232000
Outstanding rent expense		$15000
Loan	300000-25000	$275000
Owner’s equity;
Owner’s equity in capital	$50000
Retained earnings	$34000
Owner’s equity		$84000
Liabilities and equity		$606000
Other liabilities	Difference in balance of beginning financial position	$100000
Total liabilities and equity		$706000

Retained earnings balance;

Income for the period                                  $84000

Less: Drawings                                            ($50000)

Balance                                                      $34000      

Difference in the balance of financial position as on 1 July, 2018;

Assets;

Cash                               $200000

Laboratory equipment     $250000

Total                              $450000

Liabilities;

Loan                              $300000

Owner’s equity               $50000      

Total                              $350000

Difference= 450000-350000= $100000

(Liabilities balance is lower by $100000. So it is assuming that there is some other liabilities)